Dishman Pharma's 2QFY11 below expectations::Motilal Oswal

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 Dishman Pharma's 2QFY11 operating performance was below expectations. It reported 2.1% YoY decline in revenue
to Rs2.13b (v/s our estimate of Rs2.33b) and 26% YoY decline in EBITDA to Rs369m (v/s our estimate of Rs528m).
 Topline performance was impacted by (1) poor performance of its subsidiary, Carbogen AMCIS, (2) lower revenues in
contract research and MM segment, and (3) appreciation of the Rupee vis-à-vis the Euro.



 EBITDA declined 26% YoY to Rs369m while EBITDA margin contracted 553bp YoY to 17.4% due to adverse product
mix, increase in staff cost due to fresh recruitments and increments given to existing employees, bunching of
expenses and rupee appreciation.
 Despite poor operational performance, adjusted PAT increased 21% YoY to Rs295m due to higher other income at
Rs203m (mainly forex gains of Rs198m).
Outlook and view
The macro environment for the CRAMS business remains favorable, given India's inherent cost advantages and chemistry
skills. We believe Dishman will benefit from increased outsourcing from India, given its strengthening MNC relations.
However, the adverse business environment for Carbogen and Euro depreciation will continue to impact earnings growth
in FY11. We expect revenue CAGR of 7.6%, EBITDA CAGR of 8.1% and earnings CAGR of -6.5% over FY10-12. Based
on our revised estimates, the stock currently trades at 15.1x FY11E and 14.6x FY12E earnings. RoE will continue to be
at 15% till new facilities and CRAMS contracts ramp up. We maintain our Neutral rating.